SARFAESI And Arbitration Proceedings Can Proceed Parallely As Nature Of Both Proceedings Is Distinct: Bombay High Court

The Bombay High Court bench of Justice Advait M Sethna has affirmed that SARFAESI proceedings are in the nature of enforcement proceedings, while arbitration is in the context of an adjudicatory proceedings. The SARFAESI proceedings and arbitration proceedings thus can proceed parallely. The court further observed that the role of referral court under section 11 of the Arbitration Act is very limited to verifying the existence of an arbitration agreement. Brief Facts This application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act” for short) seeking appointment of a sole arbitrator. It is to adjudicate upon the disputes and differences arising out of and in relation to the loan agreement dated 13 September 2018 which includes sanction letter dated 16 August 2018 executed between the applicant and the respondent. The respondent had approached the applicant to obtain a finance facility. Accordingly, the applicant issued a sanction letter dated 16 August 2018, sanctioning loan amount to the respondent for a sum of Rs.6,75,00,000/- (Rupees Six Crores Seventy-Five Lakhs). The sanction letter was a part of the loan agreement and all terms and conditions of the sanction letter formed an integral part of the loan agreement. The said loan agreements for the above sanction and disbursement amount stipulated that the seat of arbitration shall be New Delhi for the purposes the disputes and differences arising thereunder. As stated the applicant is pursuing the said proceedings under such agreements. Though the respondent was making payments, there were defaults on the part of the respondent to adhere to the terms and conditions of the loan agreement and that the respondent defaulted in repayments of EMI amount as agreed under the loan agreement and accordingly there were continued defaults on the part of the respondent. The applicant through its authorized officer issued a statutory demand notice dated 20 June 2022 to the respondent under Section 13(2) of the SARFAESI Act calling upon the respondent to make payment for a sum of Rs.6,11,38,461.4/- due as on 16 June 2022 with further interest and other charges at the contractual rates till actual payment and/or realization thereof within sixty days from the receipt of the demand notice. T The applicant contends that the respondent failed to make payment to the applicant even after such statutory sixty days period, from the receipt of demand notice by the respondent.It is in this context that it was constrained to file proceedings under Section 14 of the SARFAESI Act for taking over possession of the mortgaged properties, which forms the subject matter of the auction proceedings initiated by the applicant. Arbitration clause was invoked to which no reply was given by the respondent therefore the present application was filed. Decision Of The Court: The court, at the outset, observed that the respondent has not given any reply to multiple notices sent to him. It was further observed that it shows that the respondent is not really interested in pursuing or contesting these applications. In view of the above, it would be in the interest of justice that the present application under section 11(6) of the Arbitration be decided. A careful perusal of the record makes it clear that there is an arbitral clause contained in loan agreement dated 13 September 2018 which states that all claims or disputes arising out of or in relation to the loan agreement shall be settled by arbitration,a former judge of the Supreme Court or the High Court shall act as sole arbitrator and the place/venue of arbitration shall be Mumbai. It was further noted that even though the said arbitration clause provides for appointment of the arbitrator to be done so unilaterally by the applicant a perusal of notice invoking arbitration dated 10 February 2023 shows that the applicant while invoking the arbitration clause suggested the name of a neutral sole arbitrator, as incorporated in the said notice. In view thereof, it was observed that “it is not necessary to delve into the issue of unilateral appointment of an arbitrator who is now ineligible to act in terms of the decisions of the Supreme Court in Perkins Eastman Architects DPC and Another vs. HSCC (India) Limited, 2020.” The primary objection raised by the respondent which relates to the very invocation of the arbitration clause by the applicant in light of the pending proceedings before DRT. In M.D. Frozen Foods Exports Pvt. Ltd and Ors. v. Hero Fincorp Limited, 2017 the Supreme Court has held that “SARFAESI proceedings are in the nature of enforcement proceedings, while arbitration is in the context of an adjudicatory proceedings. The SARFAESI proceedings and arbitration proceedings thus can proceed parallely.” It was observed that in view thereof, such objection raised by the...

SARFAESI And Arbitration Proceedings Can Proceed Parallely As Nature Of Both Proceedings Is Distinct: Bombay High Court

Mohd Malik Chauhan

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